Premium Finance Life Settlements



Transcript

Hello! I’m David Mickelson from Mickelson Capital Consulting. Today we are going to talk about premium finance of life insurance. It’s a well talked about subject, but very much misunderstood. So here is some basic information to know. Many people finance insurance because it’s an easy way to own a lot of insurance and have an out-of-pocket expense that is quite modest – which is just the interest of borrowing the premium. It works for quite a while, but on a permanent basis, if somebody lives for more than about fifteen years, the accumulated interest payments on borrowing money to buy life insurance, tends to eat up the benefit. So really, it’s a very serious decision to do premium finance because after very many, many years the actual accumulated interest does exceed the amount of borrowed premium that you would otherwise pay. Now there’s three types of premium finance. One is completely collateralized by putting up other assets, which is something the insurance industry readily supports. There’s another kind of premium finance that is know as Hybrid Premium finance. That is associated with people that are aiming to do Life Settlements in the future. Some insurance companies approve of it, and essentially what it means is that instead of putting up collateral as the borrower, people who buy this kind of insurance only put up a part of the collateral and outside assets, and have the rest of the assets be essentially the policy itself. Lastly, there’s something that is discredited and not available anymore called non-recourse premium financing. It’s no longer available because it was directly associated with people who borrowed money essentially for the purposes of having policies in force for a short period of time, usually 2-3 years, and then they sold them in life settlements. The life insurance industry has roundly rejected that strategy. So realistically, in today’s world, fully collateralized life insurance premium financed is the only legitimate way to go. With that, thank you for your time and attention.

 

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